Don’t confuse cause with coincidence
. – W. Edwards Deming

 

This is the second in a series examining law firm decline. Part 1 — Overconfidence and Law Firm Decline can be seen here.

In Jim Collins’ book How the Mighty Fall, he describes phase two of business decline as “Undisciplined Pursuit of More.”

When it comes to much of the growth we have witnessed in law firms, I think a bit more in-our-face is appropriate. When it comes to law firms, we can call the second phase of decline a period of Ego Driven Growth.

This type of growth is always represented as in the interest of the firm and its partners. In fact, it serves to weaken the firm, and puts it at risk.

In most discussions about businesses that are in decline, it is typically assumed that the root cause of decline is either management complacency, or the failure to innovate and respond to market changes.  The Collins research debunks this theory.

In most cases the root cause of decline is over-reaching and growing in a reckless manner.

Brobeck – A Case of Reckless Growth

When the charismatic Tower Snow was elected as the firm’s chairman in 1998, Brobeck was coming off 72 years of steady growth. The firm was a highly regarded San Francisco based operation that proudly sat in the AMLAW top 50.

Snow had high aspirations, and sought to accelerate the firm’s rate of growth.  Focusing on the emerging technology sector, he had visions of building Brobeck into one of the world’s largest and most prestigious firms – quickly.  His strategy of hyper-aggressive lateral hiring was launched in the middle of the dot.com craze, a time in which it was difficult for law firms to go wrong.

And then the market cooled dramatically.

Instead of moderating the approach and battening down the hatches, Snow pressed ahead with his growth strategy.

With profits falling and partners and clients leaving, Snow stepped down as chairman. His resignation was followed by the firm’s decision to close its doors. Ultimately, Brobeck was forced into bankruptcy.

In my experience, the needs of clients and working lawyers drive a very small percentage of law firm growth.  Rather, a leader who has determined that success is defined by size is almost always at the heart of a relentless appetite for growth.

When growth outstrips a firm’s ability to integrate and ensure quality, the firm is in decline.  The longer the trend continues the greater the firm’s risk of permanent damage.

Disciplined growth of a law firm — or any business for that matter — is not a problem; but growth that threatens an organization’s future is. Common indicators of this kind of problem include:

  • Growth in size that has outpaced the experience of leadership and management
  • Disproportionate growth in debt
  • Additions are not being 100% integrated
  • Profitable areas of the firm are not receiving appropriate investment
  • Support systems are strained

On the other hand, disciplined growth is measured, strategic in nature, and the product of partner consensus and shared aspirations.

Jim Collins says it so well, “While no leader can single handedly build an enduring great company, the wrong leader vested with power can almost single handedly bring a company down.”

How is your firm managing growth?

 

 

 

 

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Photo of Roger Hayse Roger Hayse

Roger Hayse is a founding Director of Hayse LLC. For 30 years he has closely advised law firm management and legal industry service providers. His career is highlighted by consistently providing the counsel and leadership critical to successful law firm transitions. He is…

Roger Hayse is a founding Director of Hayse LLC. For 30 years he has closely advised law firm management and legal industry service providers. His career is highlighted by consistently providing the counsel and leadership critical to successful law firm transitions. He is a frequent writer and speaker, and authored the 2002 book “Law Firm Strategy”.